Hay v. Star Fire Insurance

Brady, J. : The plaintiff, in June, 1867, held a mortgage as mortgagee, for the sum of $2,500. It was made by Nathan Smith and Jane, his wife. It contained the usual insurance clause. On the 28th of June, 1867, the defendants insured the plaintiff in the sum of $2,500, on her interest as mortgagee. In the following June, the plaintiff loaned the further sum of $500 and took a new mortgage, which also contained the insurance clause; she then applied through her agent for a renewal of the policy from the defendants, then about to expire, for the sum of $3,000, to cover the two sums of $500 and $2,500, loaned as stated. The new policy was not delivered when applied for but was subsequently received without examination. It did not conform to the policy first secured and for $2,500, inasmuch as it contained the following clause which was not found in the old policy. “ In all cases of loss, the assured shall assign to this company all his right to receive satisfaction therefor from any other person or persons, town or corporation, with the power of attorney to sue for and to recover the same at the expense of this company. When insured as a mortgagee, the loss shall not be payable until payment of the debt shall have been enforced, as can be collected out of the original security to which this policy may be held as collateral, and this company shall then only be liable to pay such sum, not exceeding the amount insured, as cannot be collected out of such primary security.” The plaintiff did not examine the new policy and had no knowledge or notice of the new clause, or that the policy was not made out in conformity to the application for a renewal, until after the destruction of the premises by fire. Upon these, which are the material facts, the plaintiff sought a reformation of the contract and succeeded on the trial in obtaining the relief asked. The testimony clearly warrants the conclusion that the policy for $3,000, was to be such a policy as had previously been given, and that no notice of the addition or intended addition of the clause mentioned had been given to the plaintiff or to her agent. There can be no doubt, either, that the new policy accomplished an entirely different relation between the parties to that which had pre [500] viously existed, and there can be no doubt, either, that if the policy for $2,500 had been retained the demand made upon it could not be answ.ered by the text of the clause mentioned, because it was not contained in the agreement. (Excelsior Insurance Co. v. The Royal Ins. Co., 55 N. Y., 343.) The clause itself is open to the objection, that it is an insurance of the debt and not of the property, and is not only not the agreement the plaintiff sought, but, so far as defendants are concerned, was ultra vires. They could not take such risks. (Case, supra.) The insertion of the new clause without notice, was, under the circumstances disclosed, in legal contemplation, a fraud. The plaintiff did not ask for it. It was not spoken of and was unauthorized. The reformation of a contract upon such facts and such legal conclusion of fraud is almost matter of course. When the plaintiff applied for a renewal and it was agreed upon, it meant the repetition of the policy in terms which had been agreed upon. The rules which govern applications of this kind have been elaborately discussed, in many cases, and it may be supposed that some of them are settled so as to be securely applied. It can be said, it seems with certainty, that fraud need not be expressly charged. It is sufficient if it is fairly deducible from the facts established. And further, that where it exists the relief sought will be granted and the contract reformed. The insertion of such a clause as mentioned, without an agreement therefor or notice, was as already suggested, a fraud in legal contemplation. (Story’s Equity Jur., §§ 154, 155; Lyman v. The United Ins. Co., 17 Johns., 373; Bidwell v. The Astor Mutual Ins. Co., 16 N. Y., 263; Rider v. Powell, 28 id., 310; Welles v. Yates, 44 id., 525.) A careful examination of the case has not revealed error in the findings or the validity of any exception taken. The testimony on the part of the defense in some respects corroborates that given on behalf of the plaintiff. It is true that neither the plaintiff’s agent nor herself read the first policy, but it is also true that both supposed they had secured immunity from loss if the property was destroyed to which the policy applied. This was the object they had in view and this was accomplished by the first policy. The fact of their not having read it, did not justify the defendant in substituting one differing from it in an important respect without notice, [501] which, as already suggested, was not given in this ease. Th'e testimony with regard to this new policy leads to the conclusion that the plaintiff’s agent wanted and supposed that he would obtain insurance upon the property and not of the debt, and that if the property were destroyed by fire the plaintiff would be paid. It is said, however, assuming that the policy should be reformed, the plaintiff cannot succeed because this action was not commenced within twelve months after the- loss occurred, but there are answers to the proposition which seem to be conclusive. The policy issued contained the following clause: “ When insured as a mortgagee, the loss shall not be payable until payment of such portion of the debt shall have been enforced as can be collected out of the original security to which this policy may be held as collateral, and this company shall then only he liable to pay such sum, not exceeding the amount insured, as cannot be collected out of such primary security.” It will be perceived, however, that it contemplates the adoption of all the proceedings necessary to obtain from the original security the payment of . the debt to which the policy relates, and that the defendant shall be called upon to pay only such sum as cannot be thus collected. It is, perhaps, not necessary to say that this is wholly inconsistent with the covenant requiring the commencement of an action within twelve months, because the enforcement of the demand secured by the mortgage might involve years of litigation which must be exhausted before the defendant’s liability would accrue. The provision does not, therefore, apply. It is designed to cover only the claims which originate in the loss of property insured, and as to which the defendants are primarily liable. This is our conclusion on the policy, as it exists. If, however, we consider the proposition with reference to the contract as the plaintiff avers it to have been made, then the answer is that the action, to be commenced under the provisions of the policy for the loss, does not accrue until the judgment reforming it is pronounced. . The effect of changing the policy, is, therefore, substantially to render nugatory the limitation under consideration. We think the judgment should be affirmed, with costs. Davis, P. J., and Ingalls, J., concurred. Judgment affirmed, with costs.